Microcredit, Poverty, and the Merchant of Venice

Without resorting to any research jargon let me start by saying that on a number of occasions I had the opportunity to talk to ‘microcredit’ borrowers. From them, I particularly wanted to know more about microcredit and its effects on their lives. Some of the stories they told, were both enlightening and disturbing. Strangely, these stories reminded me of Shylock, the vicious money lender in Shakespeare’s Merchant of Venice. This post is generally about Microcredit and its uncritical acceptance.

No discussion on microcredit can proceed without reference to Dr Muhammad Yunus and his Grameen Bank. In my opinion, neither of them ever faced the necessary level of scrutiny as the nature of their activities would warrant. Rigorous scrutiny is essential given that Grameen Bank’s activities – which is largely corporate and commercial in nature – involve:

(a) operations in the poverty reduction sector which concerns crucial policy choices of public nature; and

(b) transactions with the borrowers (i.e., largely around and below the poverty line) whose bargaining powers are alarmingly inadequate compared to Grameen’s corporate strength. In the absence of an appropriate regulatory body or a strong consumer group balancing these uneven positions, the issue of appropriate scrutiny becomes even more pertinent.

Regrettably, just because Dr Yunus happens to be our one and only Nobel laureate – there seemed to exist an unwritten policy in the Bangladesh media to remain uncritical of Yunus and his organisation no matter what. This is something that can only be compared to a Tagorian (Rabindrik) ‘pledge of perpetual forgiveness’ in a je tare dekhibare pay osheem khomay kind of way. Hopefully, that time has now passed. In my opinion, with his newly gained social capital (thanks to the Nobel Committee in Sweden), Yunus’s capacity to harm the country and its poor has probably increased manifold. Now-a-days, almost every week there are revealing items in the news on micro-credit which even the Yunus-friendly media cannot ignore any longer. These are the stories of suffering farmers, of the bankrupt, of the people who committed suicide under Grameen Bank’s pressures.

A number of studies have been conducted to critically examine the impacts of microcredit. Evidences are there for everyone to see. The problem is, in our desperate need for a ‘poster boy’ we have chosen to look away. Well-researched but largely overlooked criticisms exist, such as this one:

The public transcripts represent microcredit not only as an innovative approach that empowers the poor – and poor women in particular – but also as an alternative to neoliberal policy prescriptions. It is often thought of as a ‘local’, bottom-up approach that results in self-sufficiency, rather than dependency. Thus, microcredit has been, and continues to be, a panacea for poverty reduction.

The ‘hidden transcripts’ of microcredit and poverty reductionHowever, against the public transcripts of its ‘virtuous’ outcomes are rich ‘hidden transcripts’ regarding the poverty impact of microcredit. These hidden transcripts comprise the less publicly known facts about the adverse poverty impacts that also result as a consequence of implementation of microcredit programmes. The hidden transcripts substantially challenge the salience of microcredit as an effective approach to poverty reduction globally. For many of its targeted recipients, microcredit is, in practice, reinforcing poverty and survival insecurities rather than ameliorating these conditions or resulting in self-reliance through self-employment as the public transcripts maintain.

But as said, in the middle of all these Macbethan “sound and fury” associated with Microcredit etc, sane voices like the one above are failing to make their mark in the mainstream. It is as if we have found a new narcotic-induced dream, no matter how flawed, and we do not want to see it shattered. It seems like – we would rather believe in a sweet lie than face a bitter truth.

For some years now, Microcredit has been slowly gaining ground in the development debates as a possible poverty reduction tool. And then came this whole ‘hoopla’ with the Nobel Prize. With that a new band of opportunists mushroomed in all corners of the civil society — desperate to get some piece of action, to cash in while there is still time — by teaming up with Yunus (or his affiliates) in various dubious social-business schemes. In the midst of all these uproars, one may even feel that Microcredit and Social-Business have become a new religion with demigods and prophets in every part of the global civil society.

I do understand the reason behind capitalist West’s huge enthusiasm in Yunus. Because, the conventional banking system was a system which could only exploit the rich. Traditionally, banks were the institutions from which one could only ‘borrow umbrellas on sunny days on condition that they must be returned when it rains.’ So the conventional banks’ exploitative dragnet only caught the rich of the society, never the poor. Yunus, incidentally, showed the capitalist banking system a way – that even the have-nots can be exploited through a banking system. He showed them – money can be made even from the destitute, using their entrepreneurship, exploiting their dreams – while at the same time making sure that their real condition never improves, at least not above the limit Grameen executives set for them. No wonder that the West became too anxious to award him the Nobel prize, perhaps to add an aura of nobility to this new brand of exploitation, deceptive but pretty effective. We know that Grameen’s interest rates are higher than all other commercial banks.

What a formula ! Make billions (exploiting the poor) and at the same time have plenty of cheer leaders in the global civil society cheering you on as one of the good guys. Wow ! disturbingly diabolical but quite impressive nevertheless!

It is just my opinion — sometimes I cannot help but think that “Microcredit” and “Social Business” are two of the greatest frauds of our time.

FURTHER READING (Bibliography under construction)

I am trying to compile a bibliography on this issue and would really appreciate if you could please suggest published items which can be added below:

1. Heloise Weber, ‘The imposition of a global development architecture: the example of microcredit’, Review of International Studies (2002), 28: 537-555 Cambridge University Press.

2. Read this piece here for information on microcredit’s flawed and misrepresented gender dimensions. Check the bibliography part specifically which would lead to further reference materials.

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12 Responses to “Microcredit, Poverty, and the Merchant of Venice”

Comment tracking is not working at the moment. So, all comments on this issue (particularly the ones made on the cross-posts elsewhere) have been gathered/copied here in one place for reader convenience.

I am beginning to think if this is yet another stat of an organized propaganda campaign against Dr. Yunus. I don’t want to name names but we know perhaps the people who had dreamt in their wildest dreams of first to get a noble prize will be leading this campaign to undermine our hero.

As for the allegations against some companies that are indirectly linked to Grameen, this is like saying Sheikh Hasina should be personally held responsible for the arms/ammunitions and intra-party fighting of either Jubo League or Chatra League (replace Sheikh Hasina = Khaleda Zia, Jubo League = Jubo Dal, Chatra League = Jubo League) as you please.

You call yourself a “Freethinker,” yet I am surprised you have such difficulty understanding the pitfalls of “uncritical acceptance” which my post on Yunus+GB is generally about! “Organised propaganda”? Hmm. Are you sure you do not want to throw in a bit of “foreign conspiracy” (bideshi shoktir chokranto) into the mix as well? Please consider that. Because I hear that is the second formulaic accusation you have to throw at anyone critical about anything these days.

No, I am not one of the aggrieved contenders of Yunus for the Peace Prize. You see, for reasons unknown, my name did not make it to the Nobel Committee’s final shortlist ! Can you even imagine what a disappointment/surprise that was for me ?

Yes, like you, Dr Yunus used to be one of my heroes as well. Our similarities end there, because I chose to keep my mind open to all possibilities. Regrettably (trust me, it is sad for me as well) my opinion of him+GB has changed over the years. Let’s say – I am no longer as impressed as I once was. Theoretically, I do not find anything wrong with microcredit. It is an intriguing idea, no doubt. I simply refuse to accept it dogmatically as a panacea. Which part of this concept you find hard to understand as a “freethinker”?

Finally, I did not quite get the relevance of your Sheikh Hasina analogy. Does one really have to be an AL/BNP supporter or a foreign conspirator to criticise microcredit and Yunus?
[originally@EBD]

It is unfortunate that many well-intentioned people try to belittle Professor Yonus. It may be true that Grameen is charging high interest rate and has an effective scheme to ensure repayment. It may also be true that bulk of the borrowers do not see any improvement in their lives. However compare his organization to venture capitalists in the USA who provide necessary capital to start up companies. Only 1 out of 10 will succeed. The same applies to those who borrow form Grameen. Let us not disrespect a person who has made all of us proud. This is especially true since Professor Yonus gave up the idea of entering politics through sponsorship of the current government.

The scary part is that others have learned wrong lesson from Grameen. NGOs have entered loan business with vengeance and making a huge profit. It is comparable to credit card companies in USA issuing cards to people with poor credit rating at exorbitant interest rate. [originally @ EBD]

What Dr. Yunus is pitching to the West is a potential fixed-income product for the investors using the cash flow from these microcredit payments. To get a good rating, he uses his draconian methods to collect money. He also manipulates the repayment record by using money put into saving accounts of borrowers. He is just playing to Wall Street’s hand signals.

For those who think this is about poverty alleviation, I feel sorry for you. [originally@ebd]

Hmmm…Well, I can’t speak for Yunus’s Grameen MicroCredit (at least not firsthand), but I give interest free loans to poor entrepreneurs to microcredit lenders around the world through an organization called Kiva (http://www.kiva.org). Apparently not ALL microcredit lenders are as self-serving or ravenous as you say Grameen is, because many of the borrowers are applying for their fourth or fifth loans! (After having payed off their previous loans.)

On a separate note, as a Westerner it disappoints me that you would generalize us as such wicked and money hungry people.

I guess it would surprise you to learn that the “capitalist West’s huge enthusiasm in Yunus” is largely due to the fact that Yunus is seen (rightfully or not) as someone who is helping poor people.
Such a generalization would be akin to me saying something as absurd as “muslims opposition to the U.S. presence in the Middle East is evidence of their support of al Qaeda and terrorism.”

This is not a position I hold, just a portrayal of how generalizations are usually (always?) wrong. [originally@ebd]

>>”On a separate note, as a Westerner it disappoints me that you would generalize us as such wicked and money hungry people.”

I acknowledge that the piece may be read that way and apologise for that. How can I be right if the West has individuals like you? On the other hand, how can I be wrong if it is the West that has always pulled strings of entities such as WTO, WB, IMF–to the detriment of countries such as ours. So let’s not take these notions literally. And if you know “our” people (apparently you know quite a few through your good work) I am sure you would realise what I really wanted to mean.

>>”Such a generalization would be akin to me saying something as absurd as
“muslims opposition to the U.S. presence in the Middle East is evidence
of their support of al Qaeda and terrorism.”

Fair enough comment. I do agree with you that “generalisation” is not ideal but specifics can be notorious for casting arguments adrift. One can easily get bogged down by counterintuitive details which I tried to avoid (apparently unsuccessfully) in my post.

Surely you would not deny that there are characteristically complacent people in the West – who with their “burdened white man’s righteous arrogance” – think, they “understand” the problems of the third world. Perhaps, they have been led to think this way by their darling reps on the ground (eg, people like DMY). Perhaps this is exactly what the Western headquarters want to hear – ‘assurance’ that the money they are injecting will translate into quick, tangible, assessable results. Nothing is wrong with result driven actions except that these quick-fix (ie, simple solution to “not so simple” problems) attitudes so far have influenced the development/poverty agenda in the third world, often at the cost of cloaking the real issues. You see, poverty (touted as the cause of all evils) is itself a symptom of other much deeper systemic failures, not the cause.

While some of our friends in the West are trying to “find meaning in their lives” (see: Economist article; & here) through different “social enterprises” – the fate of the poor in the third world is being sealed. Why should I object to someone’s efforts to feel good about themselves? It is just that – wrong assessment of a problem inevitably leads to wrong interventions (Amartya Sen’s observation, not mine). As it happens, among the do-gooders, we are perfectly able to spot the insincere ones, including the “Gap Year Resume Beautifiers,” the “Peace Corps Bird Pullers,” the “Self-declared Third World Savers,” – when we see one. I am sure you too have come across one or two of them. We happen to have hundreds of years of colonial hindsight to see through people like them.

>>I guess it would surprise you to learn that the “capitalist West’s huge
enthusiasm in Yunus” is largely due to the fact that Yunus is seen (rightly or not) as someone who is helping poor people.

Please pardon me for refusing to confuse corporate/commercial success with egalitarianism in this case, not that they are mutually exclusive. It
is just that “We” (the hapless in the third world) have seen enough examples of CSR-principles being used as PR/propaganda tools in the palms of big corporate houses in the recent past cloaking all sorts of wrongdoings (eg, extractive industries, manufacturing and GMO sectors generally). A number of
heavyweight research exists on this point, but lets not drift any more.

Personally I do have respect for Dr Yunus for standing up for an idea (ideal?) which can hardly be said for the others. Also, how can anyone not commend him for breaking the taboo around the issue of creditability of the have-nots? He has challenged and almost demolished the established myths/prejudices, demonstrating that the poor can also be trusted with credit [see: comment#8 here ]. Perhaps in the end, this would be his lasting legacy to mankind. But, my individual respect for him is irrelevant here, since microcredit has now become much much bigger than the person Yunus. This is where my concerns lie – the “uncritical acceptance” of it all. I am sure there are decent well-intentioned lenders/entrepreneurs out there who have honourable intentions. If you feel you are one of them (and perhaps you are–Re: your ‘interest free’ loans) and consider my accusations unfair, then obviously the post is not about you or your organisation. [Note: this is the part where I resist the temptation of naming names, for obvious reasons].

I hope no one would disagree that the best way to ruin and corrupt any idea (great or not) or system is to accept it uncritically. Which is why we need to talk about these issues, raise cautions, criticise and slam, if necessary. While we are at it, the reality is–some of our words will be harsh, unpleasant, and even unfair (to some extent)–but that level of free speech is part of the deal! For years, the world has only seen the happy singing-dancing version of the Holy Gods of Microcredit; I am sure it can digest a different view or two for a change.